IMPAIRMENT OF CONTRACTUAL OBLIGATIONS

PENSIONS ‑- RETIREMENT ‑- LEOFF ‑- IMPAIRMENT OF CONTRACTUAL OBLIGATIONS

The sixty percent maximum of final average salary, as provided in § 3, chapter 120, Laws of 1974, 1st Ex. Sess., may not constitutionally be applied to the presently active members of LEOFF.

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                                                                   March 4, 1974

Honorable Lloyd G. Baker, Director
Washington State Public Employees
Retirement System
Capitol Plaza Building
Eastside at Union
P.O. Box 918
Olympia, Washington 98504                                                                                                               Cite as:  AGLO 1974 No. 27

Dear Sir:

            By recent letter you have directed our attention to § 3, chapter 120, Laws of 1974, 1st Ex. Sess. (43rd Leg., 3rd Ex. Sess.),1/relating to the payment of retirement allowances to members of the Washington Law Enforcement Officers' and Firefighters' Retirement System, and amending RCW 41.26.100 to read as follows:

            "A member upon retirement for service shall receive a monthly retirement allowance computed according to his completed creditable service as follows:  Five years but under ten years, one‑twelfth of one percent of his final average salary for each month of service; ten years but under twenty years, one‑twelth of one and one‑half percent of his final average salary for each month of service; and twenty years and over one‑twelfth of two percent of his final average salary for each month of service:  PROVIDED, That the recipient of a retirement allowance who shall return to service as a law enforcement officer or fire fighter shall be considered to have terminated his retirement status and he shall immediately become a member of the retirement system with the status of membership he had as of the date of his retirement.  Retirement benefits shall be suspended during the period of his return to service and he  [[Orig. Op. Page 2]] shall make contributions and receive service credit.  Such a member shall have the right to again retire at any time and his retirement allowance shall be recomputed, and paid, based upon additional service rendered and any change in final average salary:  PROVIDED FURTHER, That no retirement allowance paid pursuant to this section shall exceed sixty percent of final average salary, except as such allowance may be increased by virtue of RCW 41.26.240, as now or hereafter amended."  (Amendatory language underscored.)

            You have then asked for our opinion on the following question with respect to this amendatory proviso:

            "Can the 60% maximum of final average salary, as provided in this amendatory language, be constitutionally applied to the presently active members of the Law Enforcement Officers' and Fire Fighters' Retirement System?"

            In our opinion, this question must be answered in the negative.

                                                                     ANALYSIS

            The key to our answer to your question is the Washington Supreme Court decision inBakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956).  In that case the court held that a pension granted to a public employee in this state is not a gratuity but is deferred compensation for services rendered on a contractual basis ‑ so as to be subject to Article I, § 23 of the state Constitution which provides that:

            "No bill of attainder, ex post facto law, or law impairing the obligations of contracts shall ever be passed."  (Emphasis supplied.)

            Under the rule thus adopted the court, accordingly, held that:

            ". . . the employee who accepts a job to which a pension plan is applicable contracts for a substantial pension and is entitled to receive the same when he has fulfilled the prescribed conditions.  His pension rights may be  [[Orig. Op. Page 3]] modified prior to retirement, but only for the purpose of keeping the pension system flexible and maintaining its integrity. . . ."  (p. 701)

            In so concluding the Washington court placed principal reliance upon two consolidated cases decided by the California supreme court a year earlier,Allen v. Long Beach andAlger v. Long Beach, 45 Cal.2d 128, 287 P.2d 765 (1955), from which it quoted with approval as follows:

            "'An employee's vested contractual pension rights may be modified prior to retirement for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system.  [Citing cases].  Such modifications must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change.  To be sustained as reasonable, alterations of employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.  [Citing cases.]'"